Attached files
file | filename |
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EX-32 - EXHIBIT 32 - WSFS FINANCIAL CORP | ex_32.htm |
EX-31.1 - EXHIBIT 31.1 - WSFS FINANCIAL CORP | ex_31-1.htm |
EX-31.2 - EXHIBIT 31.2 - WSFS FINANCIAL CORP | ex_31-2.htm |
UNITED STATES
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SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
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x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
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For the quarterly period ended
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March 31, 2011
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OR
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
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For the transition period from
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to
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Commission File Number 0-16668
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WSFS FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
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Delaware
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22-2866913
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(State or other jurisdiction of
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(I.R.S. Employer
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Incorporation or organization)
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Identification Number)
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500 Delaware Avenue, Wilmington, Delaware
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19801
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(Address of principal executive offices)
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(Zip Code)
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(302) 792-6000
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Registrant’s telephone number, including area code:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files), ____ Yes_____ No
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o Accelerated filer x
Non-accelerated filer o Smaller reporting company o
(Do not check if smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of May 3, 2011:
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||||||||||
Common Stock, par value $.01 per share
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8,596,821
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(Title of Class)
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(Shares Outstanding)
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WSFS FINANCIAL CORPORATION
FORM 10-Q
INDEX
PART I. Financial Information
Page
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Item 1.
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Financial Statements (Unaudited)
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Consolidated Statements of Operations for the Three Months
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Ended March 31, 2011 and 2010
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3
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Consolidated Statements of Condition as of March 31, 2011
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and December 31, 2010
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4
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Consolidated Statements of Cash Flows for the Three Months Ended
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March 31, 2011 and 2010
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5
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Notes to the Consolidated Financial Statements for the Three
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Months Ended March 31, 2011 and 2010
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6
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Item 2.
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Management’s Discussion and Analysis of Financial Condition
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28
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and Results of Operations
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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40
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Item 4.
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Controls and Procedures
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40
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PART II. Other Information
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Item 1.
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Legal Proceedings
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40
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Item 1A.
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Risk Factors
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40
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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40
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Item 3.
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Defaults upon Senior Securities
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40
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Item 4.
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[Reserved]
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40
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Item 5.
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Other Information
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40
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Item 6.
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Exhibits
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40
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Signatures
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41
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Exhibit 31.1
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Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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Exhibit 31.2
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Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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Exhibit 32
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Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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2
WSFS FINANCIAL CORPORATION
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CONSOLIDATED STATEMENTS OF OPERATIONS
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Three months ended March 31,
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2011
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2010
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(Unaudited)
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(In Thousands)
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Interest income:
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Interest and fees on loans
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$ | 31,956 | $ | 31,223 | ||||
Interest on mortgage-backed securities
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7,026 | 9,032 | ||||||
Interest and dividends on investment securities
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170 | 303 | ||||||
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39,152 | 40,558 | ||||||
Interest expense:
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||||||||
Interest on deposits
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5,223 | 6,294 | ||||||
Interest on Federal Home Loan Bank advances
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2,727 | 3,977 | ||||||
Interest on trust preferred borrowings
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336 | 329 | ||||||
Interest on other borrowings
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612 | 615 | ||||||
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8,898 | 11,215 | ||||||
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Net interest income
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30,254 | 29,343 | ||||||
Provision for loan losses
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5,908 | 11,410 | ||||||
Net interest income after provision for loan losses
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24,346 | 17,933 | ||||||
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Noninterest income:
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Credit/debit card and ATM income
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4,740 | 4,370 | ||||||
Deposit service charges
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3,564 | 3,879 | ||||||
Fiduciary and investment management income
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2,827 | 1,065 | ||||||
Loan fee income
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685 | 680 | ||||||
Mortgage banking activities, net
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547 | 252 | ||||||
Bank owned life insurance income
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179 | 196 | ||||||
Security gains, net
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415 | - | ||||||
Other income
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682 | 699 | ||||||
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13,639 | 11,141 | ||||||
Noninterest expenses:
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Salaries, benefits and other compensation
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14,816 | 11,986 | ||||||
Occupancy expense
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2,838 | 2,562 | ||||||
Loan workout and OREO expenses
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2,483 | 1,097 | ||||||
FDIC expenses
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1,764 | 1,643 | ||||||
Equipment expense
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1,614 | 1,469 | ||||||
Data processing and operations expenses
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1,417 | 1,286 | ||||||
Professional Fees
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1,123 | 1,018 | ||||||
Marketing Expense
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951 | 704 | ||||||
Acquisition integration costs
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334 | - | ||||||
Non-routine ATM loss
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- | 4,491 | ||||||
Other operating expense
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4,047 | 3,377 | ||||||
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31,387 | 29,633 | ||||||
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Income (loss) before taxes
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6,598 | (559 | ) | |||||
Income tax provision (benefit)
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2,392 | (1,073 | ) | |||||
Net income
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4,206 | 514 | ||||||
Dividends on preferred stock and accretion of discount
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692 | 692 | ||||||
Net income (loss) allocable to common stockholders
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$ | 3,514 | $ | (178 | ) | |||
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Earnings (loss) per share:
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Basic
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$ | 0.41 | $ | (0.03 | ) | |||
Diluted
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$ | 0.40 | $ | (0.03 | ) | |||
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The accompanying notes are an integral part of these consolidated Financial Statements.
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3
WSFS FINANCIAL CORPORATION
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CONSOLIDATED STATEMENTS OF CONDITION
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March 31,
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December 31,
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2011
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2010
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(Unaudited)
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(In Thousands except for Per Share Data)
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Assets:
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Cash and due from banks
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$ | 65,215 | $ | 49,932 | ||||
Cash in non-owned ATMs
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328,837 | 326,573 | ||||||
Federal funds sold
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- | - | ||||||
Interest-bearing deposits in other banks
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221 | 254 | ||||||
Total cash and cash equivalents
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394,273 | 376,759 | ||||||
Investment securities held-to-maturity
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216 | 219 | ||||||
Investment securities available-for-sale including reverse mortgages
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38,378 | 52,232 | ||||||
Mortgage-backed securities available-for-sale
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683,619 | 700,926 | ||||||
Mortgages-backed securities trading
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12,432 | 12,432 | ||||||
Loans held-for-sale
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2,056 | 14,522 | ||||||
Loans, net of allowance for loan losses of $56,000 at March 31, 2011
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and $60,339 at December 31, 2010
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2,590,071 | 2,561,368 | ||||||
Bank owned life insurance
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64,422 | 64,243 | ||||||
Stock in Federal Home Loan Bank of Pittsburgh, at cost
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35,659 | 37,536 | ||||||
Assets acquired through foreclosure
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8,311 | 9,024 | ||||||
Premises and equipment
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32,310 | 31,870 | ||||||
Goodwill
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26,777 | 26,745 | ||||||
Intangible assets
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7,012 | 7,307 | ||||||
Accrued interest receivable and other assets
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56,015 | 58,335 | ||||||
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Total assets
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$ | 3,951,551 | $ | 3,953,518 | ||||
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Liabilities and Stockholders’ Equity
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Liabilities:
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Deposits:
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Noninterest-bearing demand
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$ | 505,154 | $ | 468,098 | ||||
Interest-bearing demand
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322,749 | 312,546 | ||||||
Money market
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684,996 | 743,808 | ||||||
Savings
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366,790 | 255,340 | ||||||
Time
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471,419 | 484,864 | ||||||
Jumbo certificates of deposit – customer
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304,991 | 297,112 | ||||||
Total customer deposits
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2,656,099 | 2,561,768 | ||||||
Brokered deposits
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164,267 | 249,006 | ||||||
Total deposits
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2,820,366 | 2,810,774 | ||||||
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Federal funds purchased and securities sold under agreements to repurchase
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100,000 | 100,000 | ||||||
Federal Home Loan Bank advances
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498,165 | 488,959 | ||||||
Trust preferred borrowings
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67,011 | 67,011 | ||||||
Other borrowed funds
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68,427 | 91,636 | ||||||
Accrued interest payable and other liabilities
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26,665 | 27,316 | ||||||
Total liabilities
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3,580,634 | 3,585,696 | ||||||
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Stockholders’ Equity:
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Serial preferred stock $.01 par value, 7,500,000 shares authorized; issued 52,625 at
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1 | 1 | ||||||
March 31,2011 and December 31,2010
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Common stock $.01 par value, 20,000,000 shares authorized; issued
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18,175,313 at March 31,2011 and 18,105,788 at December 31,2010
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182 | 180 | ||||||
Capital in excess of par value
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217,089 | 216,316 | ||||||
Accumulated other comprehensive income
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6,354 | 6,524 | ||||||
Retained earnings
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395,571 | 393,081 | ||||||
Treasury stock at cost, 9,580,569 shares at March 31,2011 and December 31,2010
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(248,280 | ) | (248,280 | ) | ||||
Total stockholders’ equity
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370,917 | 367,822 | ||||||
Total liabilities, minority interest and stockholders’ equity
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$ | 3,951,551 | $ | 3,953,518 | ||||
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The accompanying notes are an integral part of these Financial Statements.
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4
WSFS FINANCIAL CORPORATION
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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||||||||
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Three months ended
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March 31,
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2011
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2010
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(Unaudited)
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(In Thousands)
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Operating activities:
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Net Income
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$ | 4,206 | $ | 514 | ||||
Adjustments to reconcile net income to net cash provided by operating activities:
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||||||||
Provision for loan losses
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5,908 | 11,410 | ||||||
Depreciation, accretion and amortization
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2,349 | 1,384 | ||||||
Decrease (increase) in accrued interest receivable and other assets
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2,485 | (4,693 | ) | |||||
Non-routine ATM loss
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- | 4,491 | ||||||
Origination of loans held-for-sale
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(27,761 | ) | (14,814 | ) | ||||
Proceeds from sales of loans held-for-sale
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40,817 | 18,162 | ||||||
Gain on mortgage banking activity
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(547 | ) | (252 | ) | ||||
Gain on sale of investments, net
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(415 | ) | - | |||||
Stock-based compensation expense, net of tax benefit recognized
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306 | 204 | ||||||
Excess tax benefits from share-based payment arrangements
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(55 | ) | (79 | ) | ||||
Decrease in accrued interest payable and other liabilities
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(534 | ) | (292 | ) | ||||
Loss on sale of assets acquired through foreclosure and valuation adjustments
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2,100 | 226 | ||||||
Increase in value of bank-owned life insurance
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(179 | ) | (196 | ) | ||||
Decrease (increase) in capitalized interest, net
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44 | (13 | ) | |||||
Net cash provided by operating activities
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28,724 | 16,052 | ||||||
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Investing activities:
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Maturities and calls of investment securities
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7,557 | 500 | ||||||
Sale of investment securities available for sale
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6,124 | - | ||||||
Sales of mortgage-backed securities available-for sale
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39,992 | - | ||||||
Repayments of mortgage-backed securities available-for-sale
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49,817 | 46,372 | ||||||
Purchases of mortgage-backed securities available-for-sale
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(72,789 | ) | (116,297 | ) | ||||
Disbursements for reverse mortgages
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(43 | ) | (49 | ) | ||||
Net increase in loans
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(38,481 | ) | (3,919 | ) | ||||
Net decrease in stock of Federal Home Loan Bank of Pittsburgh
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1,877 | - | ||||||
Sales of assets acquired through foreclosure, net
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2,253 | 1,627 | ||||||
Investment in premises and equipment, net
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(1,884 | ) | (1,184 | ) | ||||
Net cash used for investing activities
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(5,577 | ) | (72,950 | ) | ||||
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Financing activities:
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Net increase in demand and saving deposits
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76,688 | 69,603 | ||||||
Net (decrease) increase in time deposits
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(5,567 | ) | 5,355 | |||||
Decrease in brokered deposits
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(84,764 | ) | (18,066 | ) | ||||
Proceeds from federal funds purchased and securities sold under agreement to repurchase
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4,500,000 | 4,435,000 | ||||||
Repayments of federal funds purchased and securities sold under agreement to repurchase
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(4,500,000 | ) | (4,435,000 | ) | ||||
Proceeds of FHLB advances
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5,577,871 | 6,321,940 | ||||||
Repayments of FHLB advances
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(5,568,665 | ) | (6,319,630 | ) | ||||
Dividends paid
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(1,686 | ) | (1,507 | ) | ||||
Issuance of common stock and exercise of employee stock options
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435 | 375 | ||||||
Excess tax benefits from share-based payment arrangements
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55 | 79 | ||||||
Net cash (used for) provided by financing activities
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(5,633 | ) | 58,149 | |||||
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Increase in cash and cash equivalents
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17,514 | 1,251 | ||||||
Cash and cash equivalents at beginning of period
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376,759 | 321,749 | ||||||
Cash and cash equivalents at end of period
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$ | 394,273 | $ | 323,000 | ||||
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Supplemental Disclosure of Cash Flow Information:
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Cash paid for interest during the period
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$ | 6,920 | $ | 9,278 | ||||
Cash paid for income taxes, net
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214 | 1,008 | ||||||
Loans transferred to assets acquired through foreclosure
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3,641 | 3,616 | ||||||
Net change in other comprehensive income
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(170 | ) | 5,129 | |||||
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The accompanying notes are an integral part of these consolidated Financial Statements.
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5
WSFS FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MARCH 31, 2011 AND 2010
(UNAUDITED)
1. BASIS OF PRESENTATION
Our Consolidated Financial Statements include the accounts of WSFS Financial Corporation (“the Company”, “our Company”, “we”, “our” or “us”), Wilmington Savings Fund Society, FSB (“WSFS Bank” or the “Bank”) and Montchanin Capital Management, Inc. (“Montchanin”) and its wholly owned subsidiary, Cypress Capital Management, LLC (“Cypress”). We also have three unconsolidated affiliates, WSFS Capital Trust III, WSFS Capital Trust IV, and WSFS Capital Trust V (“the Trusts”). WSFS Bank has two fully-owned subsidiaries, WSFS Investment Group, Inc. (“WIG”) and Monarch Entity Services LLC (“Monarch”). WIG markets various third-party insurance and securities products to Bank customers through the Bank’s retail banking system. Monarch provides commercial domicile services which include employees, directors, sublease of office facilities and registered agent services in Delaware and Nevada. Founded in 1832, the Bank is one of the ten oldest banks continuously operating under the same name in the United States.
We provide residential and commercial real estate, commercial and consumer lending services, as well as retail deposit and cash management services. In addition, we offer a variety of wealth management and trust services through our Christiana Trust division. Lending activities are funded primarily with customer deposits and borrowings. The Federal Deposit Insurance Corporation (“FDIC”) insures our customers’ deposits to their legal maximums. We serve our customers primarily from our 44 offices located in Delaware (37), Pennsylvania (5), Virginia (1) and Nevada (1) and through our website at www.wsfsbank.com.
Although our current estimates contemplate current economic conditions and how we expect them to change in the future, for the remainder of 2011, it is reasonably possible that actual conditions may be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Amounts subject to significant estimates are items such as the allowance for loan losses and lending related commitments, goodwill, intangible assets, post-retirement obligations, the fair value of financial instruments and other-than-temporary impairments. Among other effects, such changes could result in future impairments of investment securities, goodwill and intangible assets and increases of allowances for loan losses and lending related commitments as well as increased post-retirement expense.
Our accounting and reporting policies conform with U.S. generally accepted accounting principles and prevailing practices within the banking industry for interim financial information and Rule 10-01 of the Securities and Exchange Commission (“SEC”) Regulation S-X. Rule 10-01 of Regulation S-X does not require us to include all information and notes for complete financial statements and prevailing practices within the banking industry. Operating results for the three month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for any future quarters or for the year ending December 31, 2011. For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC.
Accounting for Stock-Based Compensation
Stock-based compensation is accounted for in accordance with FASB ASC 718, Stock Compensation (formerly SFAS No. 123R, Share-Based Payment). After shareholder approval in 2005, the 1997 Stock Option Plan (“1997 Plan”) was replaced by the 2005 Incentive Plan (“2005 Plan”). No future awards may be granted under the 1997 Plan, however, we still have options outstanding under the 1997 plan for officers, directors and Associates of the Company and its subsidiaries. The 2005 Plan will terminate on the tenth anniversary of its effective date, after which no awards may be granted. We have stock options outstanding under both plans (collectively, “Stock Incentive Plans”). As of March 31, 2011, the number of shares reserved for issuance under the 2005 Plan is 1,197,000.
The Stock Incentive Plans provide for the granting of incentive stock options as defined in Section 422 of the Internal Revenue Code as well as non-incentive stock options (collectively, “stock options”). Additionally, the 2005 Plan provides for the granting of stock appreciation rights, performance awards, restricted stock and restricted stock
6
unit awards, deferred stock units, dividend equivalents, other stock-based awards and cash awards. All Stock Options are to be granted at not less than the market price of our common stock on the date of the grant. All Stock Options granted during 2011 vest in 25% per annum increments, start to become exercisable one year from the grant date and expire five years from the grant date. Generally, all awards become immediately exercisable in the event of a change in control, as defined within the Stock Incentive Plans. In addition, the Black-Scholes option-pricing model is used to determine the grant date fair value of stock options. At March 31, 2011, we had 230,540 remaining shares available for issuance under the 2005 Plan.
Stock Options
The following table provides information about our stock options outstanding for the three months ended March 31, 2011:
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March 31, 2011
|
|||||||
|
|
Weighted-
|
||||||
|
|
Average
|
||||||
|
Shares
|
Exercise Price
|
||||||
Stock Options:
|
|
|
||||||
Outstanding at beginning of period
|
566,323 | $ | 42.84 | |||||
Granted
|
50,723 | 44.91 | ||||||
Exercised
|
(7,161 | ) | 22.34 | |||||
Forfeited
|
(14,348 | ) | 46.13 | |||||
Outstanding at end of period
|
595,537 | 43.18 | ||||||
|
||||||||
Exercisable at end of period
|
454,294 | $ | 44.28 | |||||
|
||||||||
Weighted-average fair value
|
||||||||
of awards granted
|
$ | 14.29 |
The following table provides information about our unvested stock options outstanding for the three months ended March 31, 2011:
|
March 31, 2011
|
|||||||
|
|
Weighted-
|
||||||
|
|
Average
|
||||||
|
Shares
|
Exercise Price
|
||||||
Stock Options:
|
|
|
||||||
Unvested at beginning of period
|
123,486 | $ | 45.04 | |||||
Granted
|
50,723 | 44.91 | ||||||
Vested
|
(24,977 | ) | 26.96 | |||||
Forfeited
|
(7,989 | ) | 39.70 | |||||
Unvested at end of period
|
141,243 | $ | 39.66 |
The total amount of compensation cost to be recognized relating to non-vested stock options as of March 31, 2011 was $941,000. The weighted-average period over which they are expected to be recognized is 2.6 years. We issue new shares upon the exercise of options.
Restricted Stock
We issued 39,383 restricted stock units and awards during the first quarter of 2011. These awards generally vest over a four year period. For these stock awards made to certain executive officers, there are additional vesting limitations under the Emergency Economic Stabilization Act of 2008 (“EESA”).
7
Performance Stock Awards
The Board approved a plan in which Marvin N. Schoenhals, Chairman of the Board, was granted 22,250 shares of restricted stock effective January 3, 2011 with a five-year performance vesting schedule starting at the end of the second year. These awards are based on acquiring new business relationships in which Mr. Schoenhals has played a meaningful role in helping us establish the new business. These shares are subject to vesting in whole or in part if pre-tax contributions achieved over a two year period result in at least a 50% return on investment of the cost of the restricted stock.
For the three months ended March 31, 2011, the effect of stock-based compensation, including stock options, restricted stock, and performance stock, on salaries, benefits and other compensation was $525,000 pre-tax ($437,000 after tax) or $0.05 per share.
2. EARNINGS PER SHARE
The following table shows the computation of basic and diluted earnings per share:
|
For the three months ended
|
|||||||||
|
|
|
March 31, | |||||||
|
2011
|
2010
|
||||||||
|
(In Thousands, Except Per Share Data)
|
|||||||||
Numerator:
|
|
|
||||||||
Net income (loss) allocable to common stockholders
|
$ | 3,514 | $ | (178 | ) | |||||
|
||||||||||
Denominator:
|
||||||||||
Denominator for basic earnings per share - weighted average shares
|
8,576 | 7,084 | ||||||||
Effect of dilutive employee stock options and warrants
|
154 | - | ||||||||
Denominator for diluted earnings per share – adjusted weighted
|
8,730 | 7,084 | ||||||||
average shares and assumed exercise
|
||||||||||
|
||||||||||
Earnings per share:
|
||||||||||
Basic:
|
||||||||||
Net income (loss) allocable to common shareholders
|
$ | 0.41 | $ | (0.03 | ) | |||||
Diluted:
|
||||||||||
Net income (loss) allocable to common shareholders
|
$ | 0.40 | $ | (0.03 | ) | |||||
|
||||||||||
Outstanding common stock equivalents having no dilutive effect
|
304 | 795 |
For the three months ended March 31, 2010, all stock options were excluded from the computation of diluted net loss per common share because the effect would have been antidilutive.
8
3. INVESTMENT SECURITIES
The following tables detail the amortized cost and the estimated fair value of our investment securities held-to-maturity and securities available-for-sale (which includes reverse mortgages):
|
|
Gross
|
Gross
|
|
||||||||||||
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
||||||||||||
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
|
(In Thousands)
|
|||||||||||||||
Available-for-sale securities:
|
|
|
|
|
||||||||||||
|
|
|
|
|
||||||||||||
March 31, 2011:
|
|
|
|
|
||||||||||||
Reverse mortgages
|
$ | (685 | ) | $ | — | $ | — | $ | (685 | ) | ||||||
U.S. Government and government
|
36,657 | 220 | (169 | ) | 36,708 | |||||||||||
sponsored enterprises ("GSE")
|
||||||||||||||||
State and political subdivisions
|
2,329 | 29 | (3 | ) | 2,355 | |||||||||||
|
$ | 38,301 | $ | 249 | $ | (172 | ) | $ | 38,378 | |||||||
December 31, 2010:
|
||||||||||||||||
Reverse mortgages
|
$ | (686 | ) | $ | — | $ | — | $ | (686 | ) | ||||||
U.S. Government and GSE
|
49,691 | 441 | (129 | ) | 50,003 | |||||||||||
State and political subdivisions
|
2,879 | 38 | (2 | ) | 2,915 | |||||||||||
|
$ | 51,884 | $ | 479 | $ | (131 | ) | $ | 52,232 | |||||||
Held-to-maturity:
|
||||||||||||||||
|
||||||||||||||||
March 31, 2011:
|
||||||||||||||||
State and political subdivisions
|
$ | 216 | $ | — | $ | (22 | ) | $ | 194 | |||||||
|
||||||||||||||||
December 31, 2010:
|
||||||||||||||||
State and political subdivisions
|
$ | 219 | $ | — | $ | (23 | ) | $ | 196 | |||||||
|
Securities with book values aggregating $33.6 million at March 31, 2011 were specifically pledged as collateral for the Bank’s Treasury Tax and Loan account with the Federal Reserve Bank, securities sold under agreement to repurchase, and certain letters of credit and municipal deposits which require collateral.
The scheduled maturities of investment securities held-to-maturity and securities available-for-sale at March 31, 2011 and December 31, 2010 were as follows:
|
Held-to-Maturity
|
Available-for Sale
|
||||||||||||||
|
Amortized
|
Fair
|
Amortized
|
Fair
|
||||||||||||
|
Cost
|
Value
|
Cost
|
Value
|
||||||||||||
|
(In Thousands)
|
|||||||||||||||
March 31, 2011
|
|
|
|
|
||||||||||||
Within one year (1)
|
$ | — | $ | — | $ | 13,498 | $ | 13,652 | ||||||||
After one year but within five years
|
— | — | 24,474 | 24,399 | ||||||||||||
After five years but within ten years
|
— | — | — | — | ||||||||||||
After ten years
|
216 | 194 | 329 | 327 | ||||||||||||
|
$ | 216 | $ | 194 | $ | 38,301 | $ | 38,378 | ||||||||
December 31, 2010
|
||||||||||||||||
Within one year (1)
|
$ | — | $ | — | $ | 10,549 | $ | 10,617 | ||||||||
After one year but within five years
|
— | — | 41,006 | 41,286 | ||||||||||||
After five years but within ten years
|
— | — | — | — | ||||||||||||
After ten years
|
219 | 196 | 329 | 329 | ||||||||||||
|
$ | 219 | $ | 196 | $ | 51,884 | $ | 52,232 | ||||||||
(1) Reverse mortgages do not have contractual maturities. We have included reverse mortgages in maturities within one year.
|
9
We sold $6.1 million of investment securities classified as available-for-sale during the first quarter of 2011 resulting in a gain on sale of $110,000. There were no sales of investment securities classified as available-for-sale during the first quarter of 2010 and, as a result, there were no net gains or losses realized during the first quarter of 2010. The cost basis for investment security sales was based on the specific identification method. Investment securities totaling $330,000 and $720,000 were called by their issuers during the first quarter of 2011 and 2010, respectively.
At March 31, 2011, we owned investment securities totaling $17.0 million where the amortized cost basis exceeded the fair value. Total unrealized losses on those securities were $194,000 at March 31, 2011. This temporary impairment is the result of changes in market interest rates subsequent to the purchase of the securities. Securities with fair values of $98,000 have been impaired for 12 months or longer. We have determined that these securities were not other than temporarily impaired as of March 31, 2011 or December 31, 2010. Our investment portfolio is reviewed each quarter for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and the intent and ability not to sell the investment for a period of time sufficient to allow for any anticipated recovery in the market. We evaluate our intent and ability to hold debt securities based upon our investment strategy for the particular type of security and our cash flow needs, liquidity position, capital adequacy and interest rate risk position. In addition, we do not have the intent to sell, nor is it more likely-than-not we will be required to sell these securities before we are able to recover the amortized cost basis.
The table below shows our investment securities’ gross unrealized losses, fair value by investment category and length of time individual securities have been in a continuous unrealized loss position at March 31, 2011.
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
||||||||||||
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
||||||
|
Value
|
|
Loss
|
|
Value
|
|
Loss
|
|
Value
|
|
Loss
|
||||||
|
(In Thousands)
|
||||||||||||||||
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
$
|
—
|
|
$
|
—
|
|
$
|
98
|
|
$
|
22
|
|
$
|
98
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
|
471
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
471
|
|
|
3
|
U.S Government and GSE
|
|
16,463
|
|
|
169
|
|
|
—
|
|
|
—
|
|
|
16,463
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired investments
|
$
|
16,934
|
|
$
|
172
|
|
$
|
98
|
|
$
|
22
|
|
$
|
17,032
|
|
$
|
194
|
The table below shows our investment securities’ gross unrealized losses, fair value by investment category and length of time that individual securities were in a continuous unrealized loss position at December 31, 2010.
|
Less than 12 months
|
12 months or longer
|
Total
|
|||||||||||||||||||||
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
||||||||||||||||||
|
Value
|
Loss
|
Value
|
Loss
|
Value
|
Loss
|
||||||||||||||||||
|
(In Thousands)
|
|||||||||||||||||||||||
Held-to-maturity
|
|
|
|
|
|
|
||||||||||||||||||
State and political subdivisions
|
$ | — | $ | — | $ | 102 | $ | 23 | $ | 102 | $ | 23 | ||||||||||||
|
||||||||||||||||||||||||
Available-for-sale
|
||||||||||||||||||||||||
State and political subdivisions
|
502 | 2 | — | — | 502 | 2 | ||||||||||||||||||
U.S Government and GSE
|
12,994 | 129 | — | — | 12,994 | 129 | ||||||||||||||||||
|
||||||||||||||||||||||||
Total temporarily impaired investments
|
$ | 13,496 | $ | 131 | $ | 102 | $ | 23 | $ | 13,598 | $ | 154 |
10
4. MORTGAGE-BACKED SECURITIES
The following tables detail the amortized cost and the estimated fair value of our mortgage-backed securities:
|
|
Gross
|
Gross
|
|
||||||||||||
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
||||||||||||
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
|
(In Thousands)
|
|||||||||||||||
Available-for-sale securities:
|
|
|
|
|
||||||||||||
|
|
|
|
|
||||||||||||
March 31, 2011:
|
|
|
|
|
||||||||||||
Collateralized mortgage obligations (“CMO”) (1)
|
$ | 423,923 | $ | 9,872 | $ | (751 | ) | $ | 433,044 | |||||||
Federal National Mortgage Association (“FNMA”)
|
130,968 | 1,129 | (650 | ) | 131,447 | |||||||||||
Federal Home Loan Mortgage Corporation (“FHLMC”)
|
54,683 | 786 | (270 | ) | 55,199 | |||||||||||
Government National Mortgage Association (“GNMA”)
|
63,112 | 1,360 | (543 | ) | 63,929 | |||||||||||
|
$ | 672,686 | $ | 13,147 | $ | (2,214 | ) | $ | 683,619 | |||||||
December 31, 2010:
|
||||||||||||||||
CMO (1)
|
$ | 490,946 | $ | 9,687 | $ | (599 | ) | $ | 500,034 | |||||||
FNMA
|
89,226 | 1,253 | (431 | ) | 90,048 | |||||||||||
FHLMC
|
43,970 | 743 | (273 | ) | 44,440 | |||||||||||
GNMA
|
65,849 | 1,229 | (674 | ) | 66,404 | |||||||||||
|
$ | 689,991 | $ | 12,912 | $ | (1,977 | ) | $ | 700,926 | |||||||
|
||||||||||||||||
Trading securities:
|
||||||||||||||||
|
||||||||||||||||
March 31, 2011:
|
||||||||||||||||
CMO
|
$ | 12,432 | $ | — | $ | — | $ | 12,432 | ||||||||
|
||||||||||||||||
December 31, 2010:
|
||||||||||||||||
CMO
|
$ | 12,432 | $ | — | $ | — | $ | 12,432 | ||||||||
|
||||||||||||||||
(1) Includes GSE CMO’s classified as available-for-sale.
|
The portfolio of available-for-sale mortgage-backed securities is comprised of 177 bonds with an amortized cost of $672.7 million of both GSE ($359.3 million) and non-GSE ($313.4 million) bonds. All bonds were AAA-rated at time of purchase; only one bond with a value of $112,432 is now rated below AAA. Downgraded bonds were re-evaluated at March 31, 2011. The result of this evaluation shows no other-than-temporary impairment for the three months ended March 31, 2011. The weighted average duration of the mortgage-backed securities was 2.5 years at March 31, 2011.
At March 31, 2011, mortgage-backed securities with market values aggregating $353.5 million were pledged as collateral for retail customer repurchase agreements and municipal deposits. From time to time, mortgage-backed securities are also pledged as collateral for Federal Home Loan Bank (FHLB) borrowings and other obligations. The fair value of these FHLB pledged mortgage-backed securities was $51.3 million at March 31, 2011.
During the first three months of 2011, we sold mortgage-backed securities available-for-sale of $40.0 million with net gains of $305,000. The cost basis of all mortgage-backed securities sales is based on the specific identification method. There were no sales of mortgage-backed securities available for sale during the first three months of 2010.
11
Mortgage-backed securities have expected maturities that differ from their contractual maturities. These differences arise because borrowers may have the right to call or prepay obligations with or without a prepayment penalty.
At March 31, 2011, we owned mortgage-backed securities totaling $223.4 million where the amortized cost basis exceeded fair value. Total unrealized losses on these securities were $2.2 million at March 31, 2011. This temporary impairment is the result of changes in market interest rates and a lack of liquidity in the mortgage-backed securities market. There were no securities impaired for 12 months or longer. We have determined that these securities were not other-than-temporarily impaired at March 31, 2011 or December 31, 2010. Quarterly, we evaluate the current characteristics of each of our mortgage-backed securities such as delinquency and foreclosure levels, credit enhancement, projected losses and coverage. In addition, we do not have the intent to sell, or is it more likely-than-not we will be required to sell these securities before we are able to recover the amortized cost basis.
The table below shows our mortgage-backed securities’ gross unrealized losses, fair value by investment category and length of time that individual securities have been in continuous unrealized loss position at March 31, 2011.
|
Less than 12 months
|
12 months or longer
|
Total
|
|||||||||||||||||||||
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
||||||||||||||||||
|
Value
|
Loss
|
Value
|
Loss
|
Value
|
Loss
|
||||||||||||||||||
|
(In Thousands)
|
|||||||||||||||||||||||
Available-for-sale
|
|
|
|
|
|
|
||||||||||||||||||
CMO
|
$ | 96,130 | $ | 751 | $ | — | $ | — | $ | 96,130 | $ | 751 | ||||||||||||
FNMA
|
80,150 | 650 | — | — | 80,150 | 650 | ||||||||||||||||||
FHLMC
|
23,785 | 270 | — | — | 23,785 | 270 | ||||||||||||||||||
GNMA
|
23,353 | 543 | — | — | 23,353 | 543 | ||||||||||||||||||
|
||||||||||||||||||||||||
Total temporarily impaired MBS
|
$ | 223,418 | $ | 2,214 | $ | — | — | $ | 223,418 | $ | 2,214 |
The table below shows our mortgage-backed securities’ gross unrealized losses, fair value by investment category and length of time that individual securities were in a continuous unrealized loss position at December 31, 2010.
|
Less than 12 months
|
12 months or longer
|
Total
|
|||||||||||||||||||||
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
||||||||||||||||||
|
Value
|
Loss
|
Value
|
Loss
|
Value
|
Loss
|
||||||||||||||||||
|
(In Thousands)
|
|||||||||||||||||||||||
Available-for-sale
|
|
|
|
|
|
|
||||||||||||||||||
CMO
|
$ | 58,821 | $ | 534 | $ | 1,171 | $ | 65 | $ | 59,992 | $ | 599 | ||||||||||||
FNMA
|
45,129 | 431 | — | — | 45,129 | 431 | ||||||||||||||||||
FHLMC
|
14,981 | 273 | — | — | 14,981 | 273 | ||||||||||||||||||
GNMA
|
23,831 | 674 | — | — | 23,831 | 674 | ||||||||||||||||||
|
||||||||||||||||||||||||
Total temporarily impaired MBS
|
$ | 142,762 | $ | 1,912 | $ | 1,171 | $ | 65 | $ | 143,933 | $ | 1,977 |
We own $12.4 million par value of SASCO RM-1 2002 securities which are classified as trading, of which, $1.4 million is accrued interest paid in kind. We expect to recover all principal and interest due to seasoning and excess collateral. Based on FASB ASC 320, Investments – Debt and Equity Securities (“ASC 320”) (Formerly SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities) when these securities were acquired they were classified as trading because it was our intent to sell them in the near term. We used the guidance under ASC 320 to provide a reasonable estimate of fair value in 2011 and 2010. We estimated the value of these securities based on the pricing of BBB+ securities that have an active market through a technique which estimates the fair value of this asset using the income approach as of March 31, 2011.
12
5. ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY INFORMATION
Allowance for Loan Losses
We maintain allowances for loan losses and charge losses to these allowances when such losses are realized. The determination of the allowance for loan losses requires significant judgment reflecting our best estimate of impairment related to specifically identified loans as well as probable loan losses in the remaining loan portfolio. Our evaluation is based upon a continuing review of these portfolios.
The following table provides the activity of the allowance for loan losses and loan balances for the three months ended March 31, 2011:
|
|
Commercial
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial
|
Mortgages
|
Construction
|
Residential
|
Consumer
|
Total
|
|
|||||||||||||||||||||
Allowance for loan losses
|
(In thousands)
|
|
||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Beginning balance
|
$ | 26,480 | $ | 10,564 | $ | 10,019 | $ | 4,028 | $ | 9,248 | $ | 60,339 |
|
|||||||||||||||
Charge-offs
|
(3,365 | ) | (247 | ) | (5,226 | ) | (406 | ) | (1,756 | ) | (11,000 | ) |
|
|||||||||||||||
Recoveries
|
127 | 8 | 391 | 85 | 142 | 753 |
|
|||||||||||||||||||||
Provision
|
1,294 | 1,541 | 1,474 | 56 | 1,543 | 5,908 |
|
|||||||||||||||||||||
Ending balance
|
$ | 24,536 | $ | 11,866 | $ | 6,658 | $ | 3,763 | $ | 9,177 | $ | 56,000 |
|
|||||||||||||||
|
|
|||||||||||||||||||||||||||
Period-end allowance allocated to:
|
|
|||||||||||||||||||||||||||
Specific reserves(1)
|
$ | 4,169 | $ | 3,297 | $ | 1,393 | $ | 778 | $ | 121 | $ | 9,758 |
|
|||||||||||||||
General reserves(2)
|
20,367 | 8,569 | 5,265 | 2,985 | 9,056 | 46,242 |
|
|||||||||||||||||||||
Ending balance
|
$ | 24,536 | $ | 11,866 | $ | 6,658 | $ | 3,763 | $ | 9,177 | $ | 56,000 |
|
|||||||||||||||
|
|
|||||||||||||||||||||||||||
Period-end loan balances evaluated for:
|
|
|||||||||||||||||||||||||||
Specific reserves(1)
|
$ | 23,252 | $ | 15,032 | $ | 30,942 | $ | 18,501 | $ | 5,548 | $ | 93,275 | (3) | |||||||||||||||
General reserves(2)
|
1,263,725 | 607,209 | 98,090 | 284,944 | 298,828 | 2,552,796 | ||||||||||||||||||||||
Ending balance
|
$ | 1,286,977 | $ | 622,241 | $ | 129,032 | $ | 303,445 | $ | 304,376 | $ | 2,646,071 | ||||||||||||||||
|
||||||||||||||||||||||||||||
|
(1) Specific reserves represent loans individually evaluated for impairment
(2) General reserves represent loans collectively evaluated for impairment
(3) The difference between this amount and nonaccruing loans at March 31, 2011, represents accruing troubled debt restructured loans of $7.6 million.
13
Non-Accrual and Past Due Loans
The following tables show our nonaccrual and past due loans at the dates indicated:
Greater | ||||||||||||||||||||||||||||||||
|
30–59
|
60–89
|
Greater
|
Total
|
|
|
than 90
|
|
||||||||||||||||||||||||
March 31, 2011
|
Days
|
Days
|
than
|
Past
|
|
Total
|
Days and
|
Nonaccrual
|
||||||||||||||||||||||||
(In Thousands)
|
Past Due
|
Past Due
|
90 Days
|
Due (1)
|
Current
|
Loans
|
Accruing
|
Loans
|
||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Commercial
|
$ | 9,532 | $ | 2,386 | $ | 10,230 | $ | 22,148 | $ | 1,264,829 | $ | 1,286,977 | $ | 424 | $ | 23,300 | ||||||||||||||||
Commercial mortgages
|
5,415 | 5,765 | 2,348 | 13,528 | 608,713 | 622,241 | - | 15,229 | ||||||||||||||||||||||||
Construction
|
906 | 6,064 | 11,361 | 18,331 | 110,701 | 129,032 | - | 30,942 | ||||||||||||||||||||||||
Residential
|
5,631 | 2,960 | 9,286 | 17,877 | 285,568 | 303,445 | 576 | 12,250 | ||||||||||||||||||||||||
Consumer
|
1,353 | 770 | 939 | 3,062 | 301,314 | 304,376 | - | 4,153 | ||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Total
|
$ | 22,837 | $ | 17,945 | $ | 34,164 | $ | 74,946 | $ | 2,571,125 | $ | 2,646,071 | $ | 1,000 | $ | 85,874 | ||||||||||||||||
% of Total Loans
|
0.86 | % | 0.68 | % | 1.29 | % | 2.83 | % | 97.17 | % | 100 | % | 0.04 | % | 3.25 | % | ||||||||||||||||
|
||||||||||||||||||||||||||||||||
Greater | ||||||||||||||||||||||||||||||||
|
30–59 | 60–89 |
Greater
|
Total |
than 90
|
|||||||||||||||||||||||||||
December 31, 2010
|
Days
|
Days
|
than
|
Past
|
Total
|
Days and
|
Nonaccrual
|
|||||||||||||||||||||||||
(In Thousands)
|
Past Due
|
Past Due
|
90 Days
|
Due (1)
|
Current
|
Loans
|
Accruing
|
Loans
|
||||||||||||||||||||||||
Commercial
|
$ | 3,004 | $ | 692 | $ | 8,755 | $ | 12,451 | $ | 1,225,595 | $ | 1,238,046 | $ | - | $ | 21,577 | ||||||||||||||||
Commercial mortgages
|
6,574 | - | 2,056 | 8,630 | 613,368 | 621,998 | - | 9,490 | ||||||||||||||||||||||||
Construction
|
1,685 | 3,980 | 14,238 | 19,903 | 120,756 | 140,659 | - | 30,260 | ||||||||||||||||||||||||
Residential
|
6,913 | 2,024 | 9,658 | 18,595 | 291,900 | 310,495 | 465 | 11,739 | ||||||||||||||||||||||||
Consumer
|
1,355 | 261 | 1,756 | 3,372 | 307,137 | 310,509 | - | 3,701 | ||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Total
|
$ | 19,531 | $ |